Severance Agreement

Create a Severance Agreement Online - Complete Guide

A Severance Agreement is a legally binding contract that sets out the terms on which employment comes to an end - covering severance pay, notice, final benefits, confidentiality, release of claims and any ongoing obligations after departure. It provides clarity for both employers and employees, reduces legal risk and ensures that the exit is handled fairly, professionally and with full transparency.

This guide explains everything you need to know about Severance Agreements: what they include, when to use one, the legal principles involved across different jurisdictions and how to create a clear, legally reliable agreement that supports a smooth and respectful transition for both sides.

CONTENTS

What is a Severance Agreement?

A Severance Agreement is a legally binding contract that sets out the terms under which an employee’s employment ends. It records the financial, legal and practical arrangements agreed between the employer and employee, helping both parties conclude the relationship on clear, fair and enforceable terms.

A well-structured Severance Agreement typically covers:

• Severance pay or compensation (lump sum, enhanced redundancy, bonuses)
• Notice arrangements (worked notice, pay in lieu, final employment date)
• Waiver or release of claims (confirming the employee will not pursue legal action relating to employment or its termination)
• Confidentiality and non-disparagement obligations
• Post-employment restrictions, if applicable (non-compete, non-solicit, IP protections)
• Final benefits and entitlements (holiday pay, commissions, pensions, healthcare)
• Return of company property and any final duties or transition requirements

Although the terminology varies by jurisdiction (e.g., Severance Agreement, Separation Agreement, Release Agreement, Settlement Agreement), the purpose is universal:

To define a clear, mutually agreed framework for ending employment - reducing legal risk, preventing future disputes, and providing both parties with certainty and closure.

Who Needs a Severance Agreement?

A Severance Agreement is appropriate whenever an employer and employee mutually agree to end employment on defined terms - especially where compensation, confidentiality or a waiver of claims is involved.

It is commonly used by both employers and employees, each for different reasons.

For Employers

A severance contract helps employers ensure the exit is lawful, compliant and properly documented.

Common situations include:

• Redundancy, restructuring or downsizing, where roles are being removed or reorganised
• Performance or conduct issues, where both sides prefer a managed exit rather than ongoing procedures
• Ending employment by mutual agreement, avoiding uncertainty or dispute escalation
• Executive or senior leadership departures, where compensation, bonuses, equity or post-employment restrictions must be formalised
• Resolving workplace disputes, grievances or potential claims without entering litigation
• Protecting business interests, such as confidential information, clients, IP or reputation

For Employees

Managers, specialists and executives often negotiate severance to ensure a fair financial exit, clean record and clear legal boundaries.

Common situations include:

• Severance pay, notice pay or enhanced financial packages
• Continuation of benefits, bonuses, shares, commissions or healthcare
• Securing agreed references or neutral statements of employment
• Clarifying post-employment restrictions, such as non-compete or non-solicitation clauses
• Resolving disputes, avoiding lengthy conflict or tribunal/court processes
• Protecting their future rights, with transparent terms and no ambiguity

Overall | A Severance Agreement is suitable for any agreed exit where payment, legal release, or confidentiality is involved. It protects both sides, creates certainty and prevents future misunderstandings - making it an essential tool for smooth, professional employment transitions.

Benefits of a Severance Agreement

A well-drafted Severance Agreement provides clarity, certainty and legal protection for both the employer and the employee.

It sets out the terms of departure in a transparent, agreed format - reducing conflict, providing financial certainty and safeguarding business interests.

Here are the key benefits and why they matter:

1. Clear Resolution of All Claims
A severance contract formally settles any existing or potential employment-related claims. This prevents future disputes about dismissal, discrimination, bonuses, pay or workplace treatment and gives both sides finality.

2. Financial Security for the Employee
The agreement confirms exactly what the employee will receive - severance pay, notice pay, bonuses, commissions, accrued holiday and other entitlements. This provides stability and allows the employee to plan their next steps with confidence.

3. Reduced Legal and Reputational Risk for the Employer
Employers gain peace of mind knowing the employee cannot bring legal claims later (subject to local legal requirements). This protects the organisation from costly disputes, tribunal claims, and negative publicity.

4. Confidentiality and Business Protection
Most agreements include confidentiality, non-disparagement and protection of company information. This ensures sensitive data, internal issues, client lists, trade secrets and business reputation remain protected after the employee leaves.

5. Consistent and Professional Exit Process
A Severance Agreement creates a structured, respectful exit — especially useful in sensitive situations such as disputes, redundancies or senior leadership changes. It maintains goodwill, reduces workplace disruption and helps both sides move forward cleanly.

6. Clarity around Post-Employment Restrictions
The agreement can reaffirm obligations such as non-compete, non-solicitation, confidentiality or IP ownership. This avoids misunderstandings about what the employee can and cannot do after leaving.

7. Faster, More Efficient Settlement
Rather than entering lengthy HR processes or legal disputes, a severance deal provides a quick, mutually agreed resolution. This saves time, reduces stress and avoids unnecessary legal costs for both parties.

When to Use a Severance Agreement

A Severance Agreement is appropriate whenever employment is ending and both parties want to document clear, legally reliable terms - especially where compensation, waiver of claims or confidentiality is involved.

These agreements help manage risk, provide certainty and ensure a smooth, professional departure.

You should use a Severance Agreement in situations such as:

1. Redundancies, Layoffs or Restructuring

Used globally in redundancy programs, economic layoffs and company reorganisations. When roles are removed or an organisation restructures, severance terms help ensure:

• Fair compensation
• Proper notice and transition
• Confirmation that employment claims are settled

2. Mutual Separation or Agreed Termination

A Severance Agreement provides a respectful, legally safe exit when both sides agree that the employment should end - often due to:

• Misaligned expectations
• Performance issues resolved privately
• Cultural or role fit
• Business direction changes

3. Resolving Workplace Disputes Without Litigation

A severance deal can resolve matters confidentially, avoiding lengthy legal processes - often used to settle:

• Grievances
• Harassment or discrimination complaints
• Contract or bonus disputes
• Disciplinary issues

4. Executive or Senior Leadership Departures

For executives, directors or senior managers, severance agreements are commonly used to set out:

• Negotiated compensation
• Stock or equity treatment
• Confidentiality and non-disparagement
• Ongoing cooperation obligations (e.g., handovers)

5. Departures Involving Ex-Gratia or Enhanced Payments

Whenever a business offers additional or goodwill payments beyond statutory requirements, a severance contract ensures clarity and protects the organisation legally.

6. Protecting Business Interests

Use one if you need to formalise:

• Return of company property
• Reinforcement of non-compete or non-solicitation clauses
• Protection of confidential information
• Restrictions on future claims

7. Ending Employment Amicably and Professionally

Even when relations are positive, a written agreement ensures:

• Both sides understand the final terms
• No misunderstandings arise later
• Confidentiality and reputation are protected

Jurisdiction note
In many regions (e.g., UK, US, EU, Australia), severance or settlement agreements are especially important where the employee waives the right to bring certain legal claims - meaning the agreement must meet specific legal requirements to be enforceable.

What to Include in a Severance Agreement

A strong Severance Agreement should clearly set out the financial, legal and practical terms of the employee’s departure. It must protect both parties, minimise risk and prevent future disputes.

While the exact clauses vary by country and employment laws, most severance contracts follow a similar structure.

Below are the key clauses typically included:

1. Termination Details

This section records the essential facts of the employment ending. It provides clarity so neither party can dispute the timeline later - such as:

• Final working day
• Notice arrangements (worked notice, garden leave, or payment in lieu)
• Whether ongoing duties or handover obligations apply
• Finalisation of access rights (IT systems, premises, tools)

2. Severance Payments, Salary & Benefits

This clause sets out everything the employee will receive on exit. Transparency here reduces disputes - especially around tax treatment, payout timing or eligibility:

• Severance or redundancy payment
• Payment in lieu of notice (if applicable)
• Outstanding salary, bonuses, commissions or expense claims
• Accrued annual leave or PTO
• Continuation, conversion or termination of benefits (insurance, healthcare, pension, stock plans)

3. Waiver and Release of Claims

One of the most important sections. It typically includes:

• Confirmation that the employee waives their right to bring certain legal claims relating to employment or termination
• A list of claims or statutes being waived (varies by jurisdiction)
• Confirmation that no further payments, claims or disputes will follow

In many countries (e.g., UK, US, Canada, Australia), this clause has formal legal requirements to be valid.

4. Confidentiality & Non-Disparagement

These help protect reputation and reduce the risk of sensitive information being shared. To protect business interests, severance agreements commonly include:

• Confidentiality of the agreement terms
• Continued confidentiality of business information, clients and trade secrets
• Non-disparagement obligations (both sides)
• Restrictions on discussing the circumstances of the departure

5. Post-Employment & Restrictive Covenants

Where relevant, the agreement may confirm:

• Existing non-compete, non-solicitation or non-poaching clauses
• Any extensions, clarifications or waivers of those obligations
• How long restrictions apply
• Handling of proprietary information or inventions

This ensures both parties understand their ongoing obligations.

6. Return of Company Property

A practical but essential clause requiring the employee to return:

• Laptops, phones, security cards
• Documents, data, files, backups
• Tools, equipment or company credit cards

It may also confirm removal of company data from personal devices.

7. References, Announcements & Communication

Often included to manage reputational and organisational impact:

• Agreed wording of an employment reference
• Any internal or external announcement
• Guidelines for what each party may say about the departure

This ensures a consistent narrative and protects both sides professionally.

8. Legal Advice & Acknowledgements

Many jurisdictions require the employee to:

• Confirm they have received independent legal advice
• Acknowledge they understand the agreement
• Confirm they are entering into it voluntarily

This strengthens the enforceability of any waiver of claims.

9. Governing Law & Dispute Resolution

To avoid conflict over jurisdiction, the agreement should specify:

• Which country or state’s law applies
• How disputes will be resolved (courts, mediation, arbitration)
• Where proceedings would take place

Clear jurisdictional wording prevents uncertainty, especially for international roles.

10. Signatures & Binding Terms

Finally, the agreement must:

• Be signed by both parties
• Include any required adviser certificates (e.g., UK settlement agreements)
• Specify the date it becomes effective

This final section makes the agreement legally enforceable.

Legal Requirements for a Severance Agreement

The legal requirements for a Severance Agreement vary across countries, but most jurisdictions follow similar principles around fairness, clarity, voluntary consent and proper documentation.

A well-drafted severance contract should ensure the employee understands the terms and that both parties are releasing each other from future claims in a lawful, enforceable way.

Below are the core principles recognised internationally, followed by jurisdiction-specific considerations.

Core Global Requirements

A Severance Agreement is more likely to be enforceable if it meets the following standards:

1. The agreement must be in writing
Severance terms should be documented formally to avoid disputes.

2. The terms must be clear, specific and unambiguous
Vague waivers or unclear payment terms can be challenged.

3. The employee must enter into the agreement voluntarily
Coercion, undue pressure or lack of time to consider the agreement can invalidate it.

4. There must be valid consideration
Typically a severance payment, benefits, or other value given in exchange for the waiver of rights.

5. Waivers of claims must be clearly identified
Many jurisdictions require specific claims or rights to be listed to ensure the employee understands what they are giving up.

6. The agreement must comply with local employment laws
This includes statutory rights around termination, discrimination, wages and benefits.

7. Confidentiality, non-disparagement and post-employment clauses must be reasonable
Overly broad or restrictive clauses may not be upheld by courts.

8. Signatures from both parties
The agreement becomes binding once signed (or electronically accepted) by both sides.

Jurisdiction Examples

Below are neutral, factual examples of how major regions differ:

United Kingdom

For a Severance Agreement to validly waive employment claims, UK law requires that the employee:

• Receives independent legal advice on the terms and effect of the agreement
• Is advised by a qualified lawyer, certified trade union official or authorised adviser
• That adviser must have insurance for providing the advice
• The agreement must identify which statutory claims are being waived
• The agreement must be in writing and meet the conditions under the Employment Rights Act 1996

These requirements apply specifically to UK “Settlement Agreements” used to waive statutory rights like unfair dismissal.

United States

Severance Agreements must comply with:

• Federal laws (e.g., Title VII, ADA, ADEA, FLSA)
• State-specific contract and labour laws
• Strict rules for waiving age-related claims under the Older Workers Benefit Protection Act (OWBPA), which requires:
  - Plain wording
  - A consideration period (e.g., 21 or 45 days)
  - A 7-day revocation period
  - Clear reference to Age Discrimination in Employment Act rights

European Union

Requirements vary by country but commonly include:

• Written agreement
• Clear statement of rights waived
• Compliance with national labour codes
• Minimum statutory entitlements (notice, holiday pay, redundancy rights)
• Rules ensuring the employee had time to consider the agreement

Some EU countries require union or labour inspector involvement; others require notarial certification.

Australia / New Zealand

Typical expectations include:

• Clear documentation of severance terms
• Compliance with national employment legislation (e.g., Fair Work Act)
• Minimum statutory notice and redundancy requirements
• Ensuring the agreement does not unlawfully waive certain protected rights

While independent legal advice is not mandatory, it is strongly recommended.

Canada

Typically requires:

• Severance terms must meet minimum employment standards
• No waiver of unwaivable statutory rights
• Explicit wording if releasing claims
• Clarity around termination pay, severance pay and benefits continuation

Many provinces also encourage or require the employee to receive reasonable time to obtain legal advice.

Why Legal Requirements Matter

Severance Agreements commonly involve waivers of important rights. If any mandatory legal formalities are missed, the agreement, or specific parts of it, may be unenforceable. Ensuring the agreement complies with local law protects both the employer and employee and avoids future disputes.

How to Create a Severance Agreement

Creating a Severance Agreement involves two key elements:

• Following the correct legal and procedural steps so the agreement is valid, fair and enforceable.
• Choosing the method that best matches the complexity of the exit and the level of legal support required.

A well-prepared Severance Agreement protects both sides, avoids future disputes and ensures the departure is handled respectfully and lawfully.

The Steps to Create a Severance Agreement

While requirements vary between countries, most severance processes follow a similar structure. The focus is clarity, fairness and compliance with employment law.

1. Agree the key terms of the exit

Both parties should discuss and align on:

• Final working day
• Notice arrangements (worked, garden leave or payment in lieu)
• Severance or ex-gratia payment
• Treatment of bonuses, commissions and benefits
• Whether a reference will be included
• Any ongoing obligations (confidentiality, non-disparagement, non-compete)

This ensures the written agreement reflects clear, mutually agreed terms.

2. Prepare the written agreement

The contract should set out all core elements:

• Termination details
• Payments and benefits
• Waiver or release of claims
• Confidentiality and post-employment obligations
• Return of company property
• Dispute resolution and governing law

Clarity is essential - vague or inconsistent clauses can make enforcement difficult.

3. Provide the employee with time to review

In many jurisdictions the employer must, or is strongly expected to:

• Give the employee a reasonable period to consider the agreement
• Encourage or allow them to obtain independent legal advice
• Avoid exerting pressure or imposing unrealistic deadlines

In regions such as the UK or US (OWBPA), independent advice or minimum consideration periods may be legally required.

4. Negotiate adjustments in good faith

Employees may request amendments relating to:

• Payment amounts
• Benefits continuation
• Confidentiality wording
• Scope of any waiver
• Reference terms

Negotiations should be constructive and transparent, ensuring both sides understand and agree to the final terms.

5. Finalise and sign the agreement

The agreement becomes binding once:

• Both parties have signed (digital or physical signatures)
• Any legally required adviser certificates or disclosures are included
• Signatures are dated correctly

Some jurisdictions also require additional formalities such as notarial certification or cooling-off periods.

6. Process all payments as agreed

The employer should:

• Pay severance and outstanding salary within the agreed timeframe
• Settle holiday pay, bonuses or commissions where applicable
• Update payroll, benefits and HR systems
• Issue final payslips or tax documents

This ensures clean, compliant closure of the employment relationship.

7. Implement post-termination steps

After signing, both parties should complete any outstanding obligations, such as:

• Returning company property
• Closing access to systems
• Removing confidential data
• Issuing references or statements if agreed
• Complying with confidentiality or non-disparagement clauses

This helps prevent misunderstandings after the employee’s departure.

Different Ways to Create a Severance Agreement

There are several approaches depending on budget, risk level and legal complexity.

1. DIY Severance Agreement

Best for: very simple, low-risk exits
Pros: free, quick
Cons: high risk of missing legal requirements, unenforceable waivers or unclear payment terms

2. Online Severance Agreement Tools

Best for: straightforward exits with clear terms
Pros: structured, compliant wording; guided questions
Cons: may not cover complex or high-value disputes

3. HR / Document Drafting Services

Best for: small businesses without in-house HR or legal teams
Pros: more tailored than DIY; still affordable
Cons: quality varies; not always legally qualified

4. Solicitor-Drafted Severance Agreements

Best for: senior roles, high-value disputes, performance issues, discrimination claims, or multi-jurisdiction exits
Pros: highest legal accuracy; personalised negotiation support
Cons: most expensive option

5. Template Packs / Pre-built Legal Kits

Best for: those comfortable customising a pre-structured legal document
Pros: inexpensive, good starting point
Cons: must be adapted carefully to meet local legal requirements

Severance Agreement Template

The example below shows a simple, general structure of how a Severance Agreement is typically written. It illustrates the type of information these agreements usually contain - such as termination terms, severance pay, waivers, confidentiality clauses and property return requirements.

Actual wording will vary depending on the role, jurisdiction, compensation package and negotiated terms. A severance agreement can be delivered as a printed letter, PDF document or digital contract, provided it is clear, signed and verifiable.

This Agreement is made on [date] between:
[Employer Name] (“the Employer”)
[Employee Name] (“the Employee”)

1. Termination of Employment
The Employee’s employment will end on [termination date].
Notice will be [worked / paid in lieu / waived] as agreed between the parties.

2. Payments and Benefits
The Employer agrees to provide the following payments, subject to normal deductions:
- Severance payment: £/$[amount]
- Payment in lieu of notice (if applicable): £/$[amount]
- Outstanding salary, bonuses or commissions (if applicable): £/$[amount]
- Payment for accrued but untaken holiday: £/$[amount]

Any benefits (e.g., healthcare, pension, stock options) will continue or end in accordance with [policy / agreement terms].

3. Waiver and Release of Claims
In consideration of the payments above, the Employee agrees to waive and release any claims arising from their employment or its termination, except for rights that cannot legally be waived in their jurisdiction.

4. Confidentiality and Non-Disparagement
The Employee agrees to:
- Keep the terms of this Agreement confidential;
- Not disclose confidential company information;
- Not make statements that may reasonably harm the Employer’s reputation.

5. Return of Company Property
The Employee confirms that all company property - including equipment, documents, access credentials and confidential data - will be returned by [date].

This Agreement is governed by the laws of [country/state].

Employer:
Signature: ____________________
Name: ____________________
Date: ____________________

Employee:
Signature: ____________________
Name: ____________________
Date: ____________________

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Severance Agreement FAQs

Is a Severance Agreement the same as a Settlement Agreement?

In many jurisdictions, the terms are used interchangeably.

“Severance Agreement” is the general business term for an employment-exit contract.

“Settlement Agreement” is the legal term in some countries (e.g., the UK) when the employee waives specific legal claims.

The purpose in both cases is the same: to record final terms and protect both parties.

Do employees have to accept a Severance Agreement?

No. A Severance Agreement is voluntary. The employee must enter into it freely, without pressure or coercion, and should have reasonable time to review the terms - usually with independent legal advice.

Can an employer withdraw a severance offer?

Yes. A severance offer can typically be withdrawn at any time before both parties have signed, unless a specific deadline or contractual obligation has been agreed.

Does a Severance Agreement include confidentiality terms?

Often, yes. However, confidentiality clauses must comply with local employment and whistleblowing laws. Most Severance Agreements include:

• Confidentiality of the agreement’s terms,
• Confidentiality of business or employment information, and
• Non-disparagement clauses to protect reputation.

What if the employee refuses to sign the agreement?

If the employee does not sign:

• They generally retain their normal employment rights,
• No enhanced severance or ex-gratia payments will usually be made, and
• The employer may proceed with normal processes (e.g., redundancy, dismissal, or continued employment) depending on the situation.

Is a Severance Agreement legally binding?

Yes - once properly drafted, reviewed and signed by both parties.
Some jurisdictions require additional conditions (e.g., mandatory legal advice, cooling-off periods or statutory wording).

Can a Severance Agreement waive all future claims?

It typically waives claims arising from employment or its termination, but: Some claims cannot legally be waived (e.g., criminal claims, future injury claims, or statutory rights in certain jurisdictions) - enforceability varies by country.

Can an employee still claim unemployment benefits after signing?

This depends on local law. In many countries, signing a Severance Agreement does not prevent unemployment benefit eligibility, provided the employee was not terminated for gross misconduct.

Can the agreement include post-employment restrictions?

Yes. Severance Agreements often reference:

• Non-compete clauses
• Non-solicitation clauses
• Confidentiality obligations

However, enforceability varies by jurisdiction and must be reasonable in scope.

Does the employee need legal advice?

In some countries (e.g., UK, US federal law for OWBPA-covered employees 40+), legal advice or specific statutory wording is required for a waiver to be enforceable. In others, legal advice is strongly recommended but not mandatory.

Create a Severance Agreement Online

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How it works:

1. Select Create Document → below to begin.
2. Answer a few quick questions about the employment relationship, termination terms, payments and confidentiality requirements.
3. Receive a solicitor-verified Severance Agreement instantly, tailored to your situation.
4. Review, sign and share the final document with the other party.

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